Suppose the one year forward rate for Brazilian Real (BRL) versus the USD is F360 (BRL/$) = 2.8

The current spot rate is S (BRL/$) = 2.2

Annual interest rate in Brazil = 10%

Annual interest rate in the US = 4%.

You may borrow BRL 2.2 million, or $1 million.

Using the information above, choose the statement below that describes a profitable covered interest arbitrage strategy:

a. Borrow 2.2 million BRL, invest in $ for one year, repay the BRL loan, and the profits in USD are between $175,000 and $180,000.

b. Borrow 2.2 million BRL, invest in the United States for one year, repay the Real loan, and profits in USD are between $250,000 and $300,000.

c. Borrow $ 1 million, invest in Brazil for one year, repay the USD loan, and the profits in USD are between $350,000 and $400,000.

d. Borrow $ 1 million, invest in Brazil for one year, repay the USD loan, and the profits in USD are between $135,000 and $140,000.